The Federal Reserve on Wednesday cut interest rates for the first time in 2025 and released policymakers' quarterly forecast of economic conditions that shows the potential outlook for further rate cuts, as well as inflation and the labor market. The 25-basis-point cut lowered the benchmark federal funds rate to a new range of 4% to 4.25%, after rates were held steady at the first five meetings of this year amid economic uncertainty regarding the labor market and inflation amid tariff shifts and immigration policy changes. Despite inflation remaining above the Fed's 2% target and tariffs expected to push inflation higher into next year, the Fed cut rates in response to signs of softness in the labor market in recent jobs reports. The Federal Open Market Committee (FOMC), which guides the central bank's monetary policy moves, released its quarterly summary of economic projections – commonly known as the "dot plot" – which anonymously showcases policymakers' forecasts for a range of indicators. FED CUTS INTEREST RATES FOR FIRST TIME THIS YEAR AMID WEAKENING LABOR MARKET The Fed's dot plot shows two more interest rate cuts this year, with 25-basis-point cuts projected at the central bank's October and December policy meetings. That would leave the federal funds rate at a median of 3.6% this year, within a range of 2.9% to 4.4%. The pace of rate cuts is projected to slow in 2026 and 2027, which have median estimates of 3.4% and 3.1%, respectively. Policymakers forecasted that the personal consumption expenditures (PCE) index, the Fed's preferred inflation gauge, will rise to 3% this year based on the median forecast within a range between 2.5% and 3.2%. Core PCE, which excludes volatile food and energy prices, is projected to reach 3.1% in 2025 in a range of 2.7% to 3.4%.
